Foreign direct investment (FDI) in the Maldives

FDI in Figures

According to UNCTAD's 2022 World Investment Report, FDI flows to the Maldives reached USD 443 million in 2021, increasing by 27.3% compared to one year earlier but still well below the three-year average recorded before the pandemic (USD 663 million in 2017-19). In 2021, the total stock of FDI stood at USD 6 billion, representing around 118.3% of the country’s GDP. The tourism sector is the main driver of FDI in the Maldives, accounting for a significant portion of the country's foreign exchange earnings. Many of the major hotel chains have invested in the Maldives, including the Four Seasons, Hilton, and Marriott. In recent years, there has been a trend towards more luxury and high-end tourism, with the development of private island resorts and exclusive villas. The fisheries sector is also a key area for foreign investment in the Maldives: the country has one of the largest tuna fisheries in the world, and foreign investors have been involved in the processing and exporting of the catch. According to the Maldives Monetary Authority, the top five countries investing in the Maldives in 2020 were China, Singapore, India, the United Arab Emirates, and the United Kingdom (latest data available).

Traditionally, the country has had an open and liberal, economical environment. Foreign companies are now allowed to own land (if in connection with major projects and provided they invested at least USD 1 billion), but the high threshold and ambiguous foreign investment laws deter investors. Property rights are generally weak; most land is owned by the government and then leased to private owners or developers. Although legally independent, the judiciary is subject to influence amid numerous allegations of judicial impropriety and abuse of power. The Ministry of Economic Development screens foreign investments, and the government still plays a large role through state-owned enterprises, which distort the economy, while costly credit and limited access to financial services impede the development of a vibrant private sector. Foreign investment is allowed in all major sectors of the economy except some specific activities (e.g. mining and quarrying, retail trade, land transport, postal and logistics services, food & beverage, defence, etc.). The COVID-19 pandemic put small island developing economies in dire straits, as a small and narrow economic base, high degree of openness and significant dependence on a few large developed countries make small island economies extremely vulnerable to global economic shocks. These economies are often at the receiving end of global crises, as they are highly dependent on external flows - trade, remittances and external capital and borrowing - compared to other groups of developing countries (United Nations). The collapse in tourist arrivals not only directly affects income and employment in airlines, ground transport and hotels, but also adversely affects the rest of the economy, including agriculture and construction. Falling tourism, and subsequently, reducing tax revenues, may exacerbate fiscal balances of many small island economies and also reduce the flow of foreign direct investment, as the tourism sector is typically the largest recipient of FDI. In recent years, Maldives made significant progress in its efforts to increase its transparency and is ranked 85th out of 180 countries in the 2022 Corruption Perception Index and 160th out of 176 in the 2023 Index of Economic Freedom.

What to consider if you invest in the Maldives

Strong Points

Maldives has a number of assets to attract foreign investors, including:

  

• tourism potential due to the presence of uninhabited islands
• no restrictions on repatriation of profits and capital proceeds, and no foreign exchange restrictions
• customs duty exemptions for large-scale projects
• easy entry by obtaining Business Visa or Corporate Resident Visa
• freedom to use foreign managerial, technical and unskilled workers
• the presence of Special Economic Zones (SEZs) with investments in excess of USD 150 million qualifying for special tax and regulatory incentives
• provision for overseas arbitration of disputes.

Weak Points

The country's weaknesses include:

 

• small domestic market
• the geography of the archipelago (consisting of 26 atolls and more than 1,000 coral islands)
• high dependence on the tourism sector
• the ambiguity of codified law and competition from politically influential local businesses
• some sectors are still restricted for foreign investors (e.g. wholesale and retail trade, logistics activities, food and beverage service activities, broadcasting, rental and leasing activities, etc.) while others have a cap on foreign equity ownership (manufacture of fish and agricultural products – 75%, construction of buildings and civil engineering – 65%, sea transport services – 49%, air transport services – 65%, etc.).

Government Measures to Motivate or Restrict FDI

The government of the Maldives provides several incentives to foreign investors, including free repatriation of profits and capital proceeds, no foreign exchange restrictions, easy entry by obtaining a Business Visa or Corporate Resident Visa, as well as tax incentives for certain investments in the Special Economic Zones (exemption from business profit tax, goods and services tax, withholding taxes, flexible procedures to employ foreigners, exemption from taxes on sale and purchase of land, etc.). The duration of these tax exemptions depends on the business area of the investment and its scale.